Improved affordability and continuing work-from-home will increase demand for residences by an average 5-10% (in terms of area) on-year in India's top six cities this fiscal, CRISIL has stated. But two of these - Mumbai and Pune - could see demand contracting because of a higher base of last fiscal, while the rest should see a rebound on a low base.
However, absolute demand will catch up with pre-pandemic levels only after fiscal 2023, the rating agency has said.
"The demand in the first half of this fiscal will be impacted by the second wave of the pandemic. Nevertheless, healthy recovery is expected in the second half, much like the previous fiscal. That said, established developers with well-managed balance sheets would grow faster than the industry, consolidate their presence, and sustain their credit profiles.
Affordability has improved by up to 30% in the six cities during the past five years because of low interest rates, moderate price correction and reduction in stamp duty (especially in Maharashtra in fiscal 2021), CRISIL Research's proprietary Minimum Annual Household Threshold Income, or MAHTITM, index city shows,: CRISIL has said.
On the other hand, capital values have bottomed out and are likely to stabilise with a slightly upward bias this fiscal because of rising raw material and construction-labour costs.
Says Isha Chaudhary, Director, CRISIL Research, "Demand in Bengaluru, Hyderabad, the National Capital Region (NCR) and Kolkata is set to rise 40-45% this fiscal after plunging 25-45% last fiscal, propelled by better affordability and lower base. In contrast, the Mumbai Metropolitan Region (MMR) and Pune will likely see a contraction of 10-20% this fiscal, after a 5-15% growth last fiscal, with end-users concluding transactions to benefit from lower stamp duty."
Says Anand Kulkarni, Director, CRISIL Ratings, "Established, prudent developers have well-managed balance sheets, reflected in comfortable debt-to-total assets ratio of below 30%, and are also well placed in terms of liquidity. They had raised Rs 44,000 crore via equity, and land and commercial assets monetisation between fiscals 2016-2021. The improved financials will come in handy to tackle stress from the second wave, meet growth needs and keep their credit profiles stable."